Life, liberty and the pursuit of primacy

CARBON CAPTURE

States chasing carbon sequestration primacy

• States are seeking authority over Class VI wells to attract carbon capture and sequestration (CCS) projects, driven by expanded tax credits and grants, and the race to comply with potential new EPA rules on carbon capture.

• At least eight states have requested authority from the EPA, including Texas, Louisiana, Arizona, and West Virginia, with North Dakota and Wyoming already having secured primacy in 2018 and 2020, respectively.

• Having their own permit programs would accelerate the approval process for CCS projects, as the EPA’s program is slow-moving with a backlog of over 80 applications.

• Companies investing in CCS facilities prefer states with their own programs, boosting the push for state primacy, though concerns exist about state agencies’ ability to uphold environmental justice standards.

• Pennsylvania, a major energy producer and emitter, is particularly interested in Class VI primacy to quickly progress on climate goals without destabilizing the economy.

• States will need support from their agencies and legislatures to develop stringent permitting programs for Class VI wells, addressing issues of underground pore space ownership and liability for carbon storage facilities.

• The race is on for states to establish CCS programs to take advantage of tax credits expiring in 2033, with states like Texas, Pennsylvania, Oklahoma, Illinois, Colorado, Indiana, and Utah well-positioned due to their oil and gas economy or geology.

• States without primacy believe that gaining authority would make their regions more attractive to industry developers seeking to invest in carbon capture projects.

NATURAL GAS AND LNG

GIP acquires 40% interest in two TC Energy pipelines for $5.2 billion

• TC Energy partners with Global Infrastructure Partners through a $5.2 billion sale of a 40% equity interest in Columbia Gas and Columbia Gulf systems.

• The transaction accelerates deleveraging and delivers a key 2023 strategic priority for TC Energy.

• Global Infrastructure Partners (GIP) will jointly fund annual maintenance, modernization, and sanctioned growth capital with TC Energy.

• TC Energy will continue to operate the systems, focusing on maximizing value through safe operations and reliability of service.

• GIP will fund its 40% share of gross capital expenditures, expected to average over $1.3 billion annually over the next three years.

• The deal supports the energy transition as the pipelines play a crucial role in the North American natural gas network and deliver a substantial portion of daily U.S. natural gas demand, including 20% of U.S. liquefied natural gas (LNG) export supply.

• The transaction is expected to close in the fourth quarter

We expect more of this to come to fruition. Oil and gas prices are low. Interest rates are high, at least compared to the last decade. Private equity and infrastructure dry power and preferred hurdles seem well suited to come in and strike a joint venture.

OIL AND GAS

US to fund $1.55 billion to monitor and reduce oil and gas methane emissions

• The U.S. government will provide up to $1.55 billion in funding to monitor and reduce methane emissions from the oil and gas sector.

• The U.S. Environmental Protection Agency (EPA) will offer technical assistance to companies to curb emissions from leaks and daily operations.

• States will receive up to $350 million from the U.S. Department of Energy’s National Energy Technology Laboratory to help companies identify and permanently reduce methane emissions from low-producing wells.

• Tribal governments, companies, and communities can bid for funds to deploy technologies and implement best practices in the oil and gas sector.

• The funding is part of the Inflation Reduction Act and is part of the Biden administration’s efforts to address greenhouse gas emissions from power plants, vehicles, and other sources.

• EPA Administrator Michael Regan has stated that the overall impact of these measures is expected to reduce the equivalent of 15 billion metric tons of greenhouse gas emissions between 2022 and 2055.

RENEWABLES

Octopus making waves with $20 billion in offshore wind this decade

• Octopus Energy plans to invest $20 billion in offshore wind by 2030.

• The investment aims to generate 12 gigawatts (GW) of renewable electricity annually, enough to power 10 million homes, with a focus on projects worldwide, especially in Europe.

• The company sees offshore wind as a technology with significant potential to transform global energy systems, boost energy security, and reduce dependence on fossil fuels.

• Octopus Energy Generation has already made five offshore deals totaling $1 billion since entering the offshore wind market last year and currently manages $7.7 billion worth of green energy projects globally.

• The announcement comes amid rising concerns over the costs of offshore wind projects, with Swedish utility Vattenfall recently halting the development of its British Norfolk Boreas offshore wind project due to cost issues.

Chinese companies are investing in chemicals for solar panels and lithium-ion batteries

• Chinese oil refiners and petrochemical companies are investing heavily in high-end chemicals for solar panels and lithium-ion batteries to meet the growing demand for energy transition technologies.

• Companies like Wanhua Chemical, Zhejiang Petrochemical Corp, Hengli Petrochemical, and state oil giant Sinopec Corp are leading this shift, moving from basic petrochemicals to higher-value products such as polyolefin elastomers for solar panel protection, ultra-high-molecular-weight polyethylene for battery separators, and carbon fiber for wind turbine blades.

• Factors driving this transition include overcapacity and weak demand for commodity chemicals, China’s rapid growth in solar and electric vehicle industries, and Beijing’s push to strengthen domestic supply chains and breakthrough technological bottlenecks for key new materials.

• Companies are building multi-billion-dollar complexes to produce these materials, with production expected to come online around 2025.

• China’s production capacity for polyolefin elastomers is set to surge to 1 million metric tons per year by 2025, costing about 20 billion yuan, to meet expanding demand.

• The domestic supply of polyolefin elastomers will partly replace China’s imports, which have been growing at a significant rate over the past years.

• The competition is intense, with about a dozen companies, including Sinopec and PetroChina, planning or building polyolefin elastomer capacity, and the first commercial producers are expected to be Wanhua and Sinopec.

INDUSTRIAL DECARBONIZATION

Rio Tinto and Giampaolo strike $1.4 billion JV for low-carbon aluminum

• Rio Tinto and Giampaolo Group form a joint venture to manufacture and market recycled aluminum products.

• Rio Tinto acquires a 50% equity stake in Giampaolo Group’s Matalco business for $700 million.

• Matalco is a leading producer of high-quality recycled aluminium billet and slab products, with six facilities in the United States and one in Canada.

• Giampaolo Group subsidiary Triple M Metal will supply recyclable feed to the joint venture, and Matalco’s leadership team will continue to manage its operations.

• Rio Tinto will be responsible for sales and marketing of Matalco products after a transition period.

• The joint venture partners will provide oversight through a board with equal representation on strategic decisions, executive appointments, safety, and ESG standards.

• The joint venture allows Rio Tinto to offer a broader range of high-quality and low-carbon aluminum products while enhancing Matalco’s service offering to a wider array of customers.

• Recycled aluminum is expected to account for over half of the United States’ demand by 2028.

• The transaction is subject to regulatory approvals and is expected to be completed in the first half of 2024.

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.,